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Key takeaways

Establish good saving habits. Be sure to save some money from every paycheck.

Invest your savings appropriately for your goals and time frame.

Debt isn't always bad but must be used responsibly.

There is no shortage of bad information out there—and falling for some of it can cost you money. It could be other people who steer you in the wrong direction, or it could be the things you tell yourself. Whatever the source, believing these myths could be hazardous to your financial health.

Get the truth behind these bits of financial misinformation.

Myth #1: All debt is bad.

In reality: It’s true that carrying a balance on your credit card or a high-interest loan can cost a lot—significantly more than the amount you initially borrowed. But not all debt will hold you back. In fact, certain types of debt, like mortgages and student loans, could help you move forward in life and achieve your personal goals.

They’re often thought of as “good” debt because the debt is funding an investment—a home or an education, which can be financially beneficial. The interest rates on mortgages and student loans are typically much lower than those on personal loans or credit cards, and the interest may be tax deductible. Even so-called “bad” debt like using a high interest rate credit card can be beneficial in some cases. Note that it is possible to take on too much good debt. (See Myth #3 below.)

No matter what kind of debt you take on, make sure you shop around for the best rates and never borrow more than you can afford to pay back on time.

Myth #2: It's not worth saving if I can only contribute a small amount.

In reality: If you start early, around age 25, saving 15% of your paycheck—including your employer’s match to your 401(k) if you have one—could help you save enough to maintain your current way of life in retirement. It sounds like a lot, but don’t lose your motivation if you can’t save that much. Don't be discouraged if you start later than age 25. Beginning to save right now and gradually increasing the amount you're able to put away can help you hit your goals.

Save as much as you can while still being able to pay for essentials like rent, bills, and groceries. Think of it this way—running a marathon is an impressive accomplishment, but that doesn't mean a 3-mile run isn't worthwhile!

Myth #3: Credit cards should be avoided.

In reality: As long as you pay off your card balance in full each month to avoid interest, making purchases with credit can be worthwhile. Many credit cards offer a rewards program. If you make all your everyday purchases with your card, you could quickly rack up points you can redeem for cash, travel, electronics, or to invest.

Also, demonstrating that you use credit responsibly can help you increase your credit score, making it easier to buy a car or a home later on. It may even earn you a lower interest rate when you borrow in the future.

It can be difficult to dig out of credit card debt, but if you control your spending and pay the card off every month, it could pay you back.

Myth #4: The stock market is too risky for my retirement money.

In reality: It’s true that money in a savings account is safe from volatility—unlike money invested in the stock market. But it won’t grow much either, given that current interest rates on savings accounts are so low. When it’s time to withdraw that money for retirement a few decades from now, your money won’t buy as much because of inflation. The stock market, however, has a long history of growth, making it a more appropriate choice for most or part of your savings in the long term.

For instance, for a young person investing for retirement, a diversified investment strategy based on your time horizon, financial situation, and risk tolerance could provide the level of growth you need to achieve your goals. You don’t need to invest only in stocks to benefit from stock market growth though. Choosing a diversified investment mix of stocks and adding securities such as bond mutual funds or certificates of deposit, which historically have not moved in lockstep with stocks, can reduce the overall level of risk in your portfolio. That means you usually won’t experience as much volatility in your investment mix as with an all-stock portfolio.

There are a variety of ways to invest. Building a diversified portfolio based on your needs and the length of time you plan to be invested can be as complicated or as simple as you prefer. You can build your own portfolio with mutual funds or exchange-traded funds—or even individual securities.

If you find investing daunting or don’t have the time to figure it out just yet, you might consider a managed account or a target-date fund for savings that are earmarked for retirement. With a target-date fund, you pick the fund with the target year closest to when you want to retire. The target-date fund manager selects, monitors, and adjusts the investment mix to match the target retirement date. With a managed account, you answer questions about yourself and why you're investing, and investment professionals build a portfolio around your goals and then work with you to keep it on track. Whatever gets you into the market and helps you stay there could be better in the long run than procrastinating and suffering the lost opportunity of not being invested.

Myth #5: I’m young, so I don’t need to save for retirement now.

In reality: It’s tempting to put off preparing for retirement while you work on paying off student loans, saving for a house, and putting kids through school. These goals feel immediate, while retirement is so far away.

But having time on your side can actually be one of the best reasons to start saving for retirement now. That’s because you may not be considering the opportunity cost of not being in the market.

Compounding happens when you earn interest or dividends on your investments. As interest is reinvested, the value of your investments grows—because the value is slightly higher, it earns even more interest, which is then packed back into the investments and it grows even more. Over time, the value can snowball because more dollars are available to benefit from potential capital appreciation. But time is the secret ingredient—if you aren’t able to start saving early in your career you may have to save a lot more in order to make up for the value of lost time.

You can start by contributing to your 401(k) or other workplace savings plan. If your employer matches your contributions, make sure you contribute up to the match—otherwise you’re basically giving up free money. If you don’t have a workplace retirement account, don’t worry. You’re in good company. Many people don’t have the option, but you still have options for saving for retirement. Consider opening an IRA to get started.

Myth #6: There’s no way of knowing how much money I’ll need in retirement.

In reality: How much you’ll need depends entirely on your situation and what you plan to do when you leave the workplace. It’s pretty likely that your lifestyle could change dramatically between age 25 and 65, so it may be hard to picture how you’ll live in retirement or how much money will be required.

But Fidelity did the math and came up with some guidelines. Aim to save at least 15% of your pretax income every year—including employer contributions. To see if you’re on track, use our savings factor: Aim to have saved at least 1x (times) your income at 30, 3x at 40, 7x at 55, and 10x at 67. Of course, everyone's situation is unique and you may find that you need to save more or less than this suggestion.

Don’t worry if you’re not always on track. Saving consistently, increasing your contributions when you’re able, and investing for growth in a diversified mix of investments could help you catch up over time. The important thing is to keep saving and investing no matter what life throws at you through the course of your career.

Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Guidance is educational in nature, is not individualized, and is not intended to serve as the primary basis for your investment or tax-planning decisions. We encourage you to build a retirement plan based on your personal time horizon, risk tolerance, retirement goals, and financial situation.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Target date funds are designed for investors expecting to retire around the year indicated in each fund's name. The funds are managed to gradually become more conservative over time as they approach the target date. The investment risk of each target date fund changes over time as the fund's asset allocation changes. The funds are subject to the volatility of the financial markets, including that of equity and fixed income investments in the U.S. and abroad, and may be subject to risks associated with investing in high-yield, small-cap, and foreign securities. Principal invested is not guaranteed at any time, including at or after the funds' target dates.

The 10x savings rules of thumb are developed assuming age-based asset allocations consistent with the equity glide path of a typical target date retirement fund, a 15% savings rate, a 1.5% constant real wage growth, a retirement age of 67 and a planning age through 93. The replacement annual income target is defined as 45% of pre-retirement annual income and assumes no pension income. This target is based on Consumer Expenditure Survey 2011 (BLS), Statistics of Income 2011 Tax Stat, IRS 2014 tax brackets and Social Security Benefit Calculators. Fidelity developed the salary multipliers through multiple market simulations based on historical market data, assuming poor market conditions to support a 90% confidence level of success.

These simulations take into account the volatility that a typical target date asset allocation might experience under different market conditions. Volatility of the stocks, bonds and short-term asset classes is based on the historical annual data from 1926 through the most recent year-end data available from Ibbotson Associates, Inc. Stocks (domestic and foreign) are represented by Ibbotson Associates SBBI S&P 500 Total Return Index, bonds are represented by Ibbotson Associates SBBI U.S. Intermediate Term Government Bonds Total Return Index, and short term are represented by Ibbotson Associates SBBI 30-day U.S. Treasury Bills Total Return Index, respectively. It is not possible to invest directly in an index. All indices include reinvestment of dividends and interest income. All calculations are purely hypothetical and a suggested salary multiplier is not a guarantee of future results; it does not reflect the return of any particular investment or take into consideration the composition of a participant’s particular account. The salary multiplier is intended only to be one source of information that may help you assess your retirement income needs. Remember, past performance is no guarantee of future results. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns also will generally be reduced by taxes. Retirement savings factors are hypothetical illustrations, do not reflect actual investment results or actual lifetime income, and are not guarantees of future results. Targets do not take into consideration the specific situation of any particular user, the composition of any particular account, or any particular investment or investment strategy. Individual users may need to save more or less than the savings target displayed depending on their inputs retirement age, life expectancy, market conditions, desired retirement lifestyle, and other factors.

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